The recent rise in Treasury bond yields will be reversed as economic data turn less buoyant

Signs of improvement in the economy are likely to prove fleeting. But the overwhelming consensus of economists and other forecasters is that the evidence of a step-up in economic activity is not only real but a harbinger of even more robust gains in employment,corporate profits,inflation and economic activity just ahead. It is no surprise then that the credit and equity markets are responding as if there is no doubt that the economy is on a sustainable and strengthening growth path. Thus, when there is the inevitable rude awakening to the realty that the economy is still struggling,keeping inflation only a distant threat and the Fed committed to its current easing course for an extended period,the recent rise in bond yields will be reversed. Much was made of the deceptive drop in the official February unemployment rate to 7.7%, down from,7.9% in January and 8.3% a year ago. However, the number employed is up a mere 1.04% over the past year. It is significant that this 1.04% annual employment growth is at or less than the normal trend growth in the labor force. Thus, the only reason the unemployment rate has declined is because the labor force trend growth has been cut in half to 0.45% over the past year. This is due to a greater than normal drop-out from the labor force of unemployed discouraged workers, early retirees and graduates returning to school. Even the recent growth in employment may be grossly overstated because of reconstruction employment connected to repair of storm damage and replacement demand. Inflated seasonal adjustments may also be responsible for the seeming recent signs of economic strength Also, the increase in Federal taxes and mandated cuts in Federal spending and other major adverse effects on employment have not yet had their impact. But they soon will. Together these depressants on economic growth will likely have a significant adverse effect on employment sufficient to raise the unemployment rate. In addition, other economic indicators cast an ominous shadow on the future. Conference Board Consumer Confidence,for example, showed an increase for February but is still down 2.8% from a year ago. But, the University of Michigan confidence conversely declined in early March to 71.8 from 77.6 in February. There is bound to be a further negative impact on employment and other measures of economic activity as business prepares for the financial burdens of the health care legislation. To prepare for healthcare some businesses will be downsizing, while others will be shifting to part-time workers. Added to these economic negatives is the deflating real estate bubble in China. The Chinese government has moved to restrict real estate speculation by limiting the purchase of investment apartments to one per family. But the damage has already been done with huge overbuilding of unoccupied cities that are too costly for the limited middle class population. The result is a sharp curtailment of the demand for basic resources used in construction. In the meantime, the recession in Europe persists and may well be deepening. In concert, these various developments and trends place a significant drag on the US economy. Philip Braverman, President Braverman Economic and Financial Consulting One Hewitt Square #249 East Northport, New York 11731 I can be reached at philipbraverman@gmail.com